Debt sales from investment-grade and junk-rated companies globally hit $1.34 trillion in 2018, down nearly a quarter from the year before and the lowest since 2011, data from Refinitiv showed, in what has been a brutal year for financial markets.

The end of 2018 has been particularly tough for corporate debt, with volumes of new bond issues in December heading for their worst month in at least a decade, the data showed.

Scores of companies pulled deals as investors baulked at buying into new bonds.

Some investors are confident about a recovery in 2019, believing that the selloff makes bond prices look attractive. But fund managers are still nervous that rising fears of an economic slowdown in the United States could cause a further fall in prices and deter new issuance.

“The last quarter selloff came a lot earlier than many had expected and caught investors off guard,” said Jorgen Kjaersgaard, a credit fund manager at Alliance Bernstein.

One London-based corporate bond banker said 2018 was the “worst year I can remember. There is nothing to look forward to in January,” he said, asking not to be named.

Total global corporate bond issuance, which includes investment and speculative - or high-yield - grade debt, has fallen to $1.34 trillion in 2018, according to data from Refinitiv. The final numbers could change as some December data had yet to be reported.

The 2018 total would be down nearly a quarter from 2017 levels, and the worst since 2011’s $998 billion, the data shows.

According to the London-based banker, European investment grade issuance in December slumped 50 percent year-on-year, while sterling issuance was 67 percent lower.

Returns on corporate credit in the U.S., Europe and across both high-yield and investment grade debt have all plunged into the red in 2018, with year-to-date losses ranging from 0.88 to more than 4 percent, data compiled by Alliance Bernstein shows.

That adds to the long list of losing bets for investors in a tough 2018, the worst year for financial markets since the global financial crisis a decade ago.

Some investors say the hit to corporate bonds - particularly the speculative end of the market - has been excessive.

Martin Horne, global head of high yield at Barings, said this year’s selloff had caused spreads to widen to levels that priced in too high a chance of companies defaulting on their debts given the underlying economic picture.

“We seem to be pricing in a more excessive economic erosion than we are actually expecting,” he told Reuters. “We are somewhat in irrational territory. At some point money will flow back in.”

WAKING UP

The slump in corporate bond issuance comes after years of booming supply, as central bank-oiled markets sent investors chasing yield in riskier corporate bonds and handed companies a relatively cheap way to ramp up their debts.

Investors appear to be waking up to the risks of highly-indebted companies borrowing money at record low levels, just as a decade of extraordinarily cheap central bank money comes to an end and traders call time on a period of relatively strong growth with low inflation.

The Bank of International Settlements said in its latest quarterly report that the “bulge” of triple-B rated corporate debt - bonds rated just above junk status - “hovers like a dark cloud over investors” after so much money was piled into the sector.

“Should this debt be downgraded if and when the economy weakened, it is bound to put substantial pressure on a market that is already quite illiquid and, in the process, to generate broader waves,” BIS warned.

The widening in corporate bond yields since October “marked a regime shift in credit”, with spreads moving out of the trading ranges seen in the last two years, Goldman Sachs analysts said in a recent note to clients. (Editing by Mark Heinrich)